Analysts Predict Revenue Plunge for Verizon as Strike Mediation Continues
The East Coast strike will likely dent Verizon’s bottom line in Q2, this year and possibly next year, even if an end to the strike is near, financial analysts said Friday. Wells Fargo Friday decreased revenue estimates for Verizon after the telco’s Chief Financial Officer Fran Shammo said Thursday that Verizon has largely stopped doing new Fios installations due to the nearly six-week-old East Coast strike (see 1605190011). A Standard & Poor’s analyst also predicted damage to Verizon’s bottom line, as experts have warned about before in this publication (see 1604270059). However, with federal mediation underway at the Labor Department, some analysts said they expect a quick recovery by the company, and a marketing expert said she doesn’t expect the labor battle to harm Verizon’s brand irreparably.
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Wells Fargo reduced its Verizon revenue estimates due to the continuing strike, Shammo’s statements about the Fios business, and the indirect impact on wireless, the bank’s analysts said in a note Friday. Wells Fargo reduced estimates for Verizon Q2 wireline revenue by $343 million to $7.5 billion, 2016 wireline revenue by $826 million to $32.4 billion, and 2017 wireline revenue by $880 million to $31.2 billion. Also, the bank reduced estimates for this year's total Verizon sales by $1.2 billion to $127.4 billion, and next year's estimate by $1 billion to $128.5 billion. Last year's sales were $131.6 billion. “While a federal mediator has the two sides back at the bargaining table, a near-term resolution is still unclear,” Wells Fargo analysts said. “While the striking employees are almost all wireline workers, we believe the strike has become a distraction to its wireless operations. VZ has been less promotional with its wireless offerings in Q2 and recent checks have shown some unfavorable porting trends.”
There is “absolutely an impact” for Verizon’s bottom line in Q2, S&P analyst Angelo Zino said in an interview. When the strike began, Zino didn’t think there would be big impact, assuming it was resolved quickly, but the situation has changed, he said. “That the strike has gone on as long as it has, we do expect from a cost perspective that the operating expenses for the quarter are actually going to be higher than [Wall Street] is anticipating.” Using managers to fill in for striking employees and work overtime is expensive, he said. And given Shammo’s comments Thursday, the strike clearly has had an impact on the Fios business, Zino added. The CFO may have been preparing Wall Street for “lackluster numbers” in Q2 and possibly a downward revision to full-year guidance, Zino said.
It’s unlikely Verizon has kept up with its backlog of repair and installation requests, Zino said. It may now be more amenable to compromising with the unions, he said. “They want to get this thing done.” Once the strike is resolved, “it’s back to business” and it won’t take long for Verizon to get back on top of it, Zino said. If the end is indeed near, Q3 should look much better than Q2, he said.
“Operational tempo will normalize once the strike ends,” predicted William Ho, principal of analyst firm 556 Ventures. The impact of the hold on Fios installations will depend on whether customers wait out the strike or jump immediately to cable competitors, he said. Verizon has sustained longer strikes before -- an 1989 strike went on for three months -- and it’s easier to repair, maintain and install Fios than the copper infrastructure of yore, Ho said. “However, there comes burnout for the managers doing strike duty. Those people are working six days a week, 12 hours a day.”
The Verizon brand is likely to remain in good standing despite the length of the strike, said Dorie Clark, a marketing strategy consultant. “The Verizon strike didn't penetrate the mainstream cultural consciousness enough to brand the company negatively for their labor practices,” she said. “However, individual customers who faced service delays or couldn't get Fios installed may well hold lasting grudges. The strike itself won't have lasting brand implications for Verizon; in a world where fewer and fewer Americans are members of labor unions, many people just don't relate to the issues at hand. But customers are used to convenience, and to the extent that the strike has harmed Verizon's ability to deliver that, they may face challenges.”
As Verizon and unions continued mediation last week in Washington, 88 U.S. House members urged them “to negotiate in good faith and agree to a fair contract.” The joint statement Thursday was led by two Democrats, House Education and the Workforce Committee ranking member Bobby Scott of Virginia and Rep. Jerrold Nadler of New York. “We applaud Verizon’s success and its ability to be profitable throughout the changes that have taken place in the telecommunications industry, but are deeply concerned about the ongoing Verizon strike,” they said. “We are troubled that the lack of a negotiated labor agreement could increase the likelihood that good jobs will be offshored to the Philippines, Mexico and other locations overseas or outsourced to low-wage, non-union domestic contractors. And we are concerned that Verizon wireless retail workers, who joined the union back in 2014, still have not been able to negotiate improvements in their wages, benefits and working conditions.”
Labor dispute experts have said mediation could break through the parties’ stubborn disagreement (see 1605020044). Verizon and the unions agreed not to make public statements while at the negotiating table. And the Communications Workers of America announced its next round of protests. Children were to join picket lines Saturday to beseech Verizon to keep their union parents’ jobs as part of 25 “Family Day” events across the country, CWA’s strike website said.